Emory Report

March 23, 1998

 Volume 50, No. 25

Managed care helps erode
January profits at hospitals

Crawford Long and Emory Hospital employees faced a surreal moment as they walked into their respective auditoriums for the second in a series of employee forums March 15-20. Each watched the other via real-time projection of both auditoriums-a process that produces a somewhat dreamlike, quasi-slow motion effect. The only difference between the two sparsely populated rooms was the color of the chairs on which employees sat.

The news they heard Monday, March 16, from Mike Riordan and Al Blackwelder, chief operating officers of Emory Hospital and Crawford Long, respectively, was more down to earth, however. The administrators didn't sugarcoat the fact that in the month ending Jan. 31, the latest for which complete figures are available, the hospitals combined made only about half their projected income-$12.7 million of an expected $24.4 million. Both cited lower-than-expected managed care reimbursements and increased reserves for bad debt and charity care as significant factors in the loss of income.

Despite this news, there are some silver linings. Both Riordan and Blackwelder believed February's figures would be much brighter for each of their hospitals, which continue to make money, although not as much as they'd like. And they actually came in 1.5 percent under budget in January per admission expenses. While a $8,279 cost per patient admission had been budgeted, the hospitals actually spent $8,156.

Emory Hospital's difficulties began in November, said Riordan, but reached their peak in January. Because January is the traditional start date for new enrollees in health care plans, hospital administrators saw more patients than anticipated going into managed care programs at the year's beginning. Had Emory Hospital not dipped into its reserves and added money to its balance sheet in January, the news would have been even bleaker, said Riordan. "These are pretty significant challenges from a budgetary standpoint," he said.

When Emory Hospitals CEO John Henry Sr. saw the downward income trend in January, he asked senior administrators to come up with a cost reduction plan of $1.2 million per month to get the hospital back on target, Riordan said. They are taking a hard look at how most of the money is spent and what costs can or cannot be controlled. In addition, they are hiring consultants to compare staffing rates to competitors in the Atlanta market and nationally.

"Layoffs? Do we see that happening?" Riordan asked, anticipating his audiences' response. "We can't say absolutely that will not be the case, but we will try to meet our goals through attrition and normal turnover. We will also look at consolidations [of hospital units] as in the past," he said. "But we did want to set a context for what is going on." Audience members at both hospitals, perhaps used to the uncertainty of the current health care environment, had little reaction to the news.

One area in which the hospitals have saved money is in consolidating services wherever possible. "We've done a good job integrating what we can up to this point," said Henry, who attended the meeting in Emory Hospital's auditorium. "I'm not sure we can do much more integration without affecting community doctor referrals at Crawford Long." Because 75 percent of admissions at Crawford Long are still made by its network of community doctors-those not on the staff of Emory Clinic-and Emory Hospital has a closed staff (only Emory doctors have hospital privileges), too much integration would do more harm than good, he said.

Hoping to grow its market share by 5 percent in the coming years, Crawford Long administrators want to embark on a major renovation. Patient surveys show the hospital is in a good, accessible location, Henry said, but the dated physician offices that surround it are no match for the state-of-the-art facilities that serve as feeders to its chief intown competitor, Piedmont Hospital.

In early March the Woodruff Center Board of Trustees authorized $1 million to develop preliminary plans for a new Crawford Long. "We would keep the Peachtree Building for patients and create a new diagnostic/theurapeutic 'chassis' [on Linden Avenue and Prescott Street]," reported Blackwelder, who was clearly excited by the prospect. The plans would include a new medical office building, women's center and emergency department. "This is a once-in-a-lifetime opportunity to work on the design of a facility from scratch," Blackwelder said.

Henry stressed that the changes will be a long time coming. "Even if the plans were ready today, it would take another three years to move in and another year of completion after that," he said

-Stacey Jones

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